A project I'm working on seems to ignore this. Much of the time when I tab it remains as a tab. Some files this will give me two spaces, some four. Other files the tabs are translated to spaces as expected.

There's a third setting, that tells Sublime to guess which indentation to use on a per-file basis when opening an existing file. Those two settings you mentioned are only for new files (or for all files if you turn off autodetect).